Ferrous Metals

At the Metalminer Week-In-Review, we promise to report accurate prices every day through our Indx. But what if that’s not enough? What about the add-ons, over-and-aboves and shipping charges? Buying steel? We’ve got bar fuel surcharges for eight US regions. Eight!

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We’ve been covering that pesky Midwest aluminum premium like Richard Sherman on a wideout, too. Want to know about anti-dumping and countervailing duties. You’ve come to the right place! All of these non-price inputs made our homepage this week as the gulf between the price and what you actually pay reared its head again this week.

Who Polices the Midwest Premium?

With falling London Metal Exchange aluminum prices and much-reduced physical delivery premiums even the combined, all-in price of aluminum is below cost for many smelters these days.

Pile of aluminium bricks waiting for transport to the factory

I’m aluminum, get me out of this warehouse!

That’s enough reason for smelters such as Alcoa, Inc., to question the involvement of the Commodities Futures Trading Commission in discussions with the LME on how best to reform their warehouse network and cut down the one-year-plus wait to get ingots out of the operations in Detroit (Metro International) and Vlissingen, Netherlands (Pacorini).

Higher premiums benefit producers such as Alcoa and UC Rusal, after all. Is it any wonder that producers want the CFTC to butt out? Yet, the CFTC still wants to butt in.

Don’t Let Your Profitability Drown in the VAT!

Meanwhile, over in China, rampant speculation is going on over how Beijing will replace its current business tax system with a new system of value-added taxes. A VAT taxes the difference between the sale price charged to a customer, minus the cost of materials and other taxable inputs.

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Better pay the VAT or this is going to be a short trip!

The best estimates we have seen show that the new VAT will considerably increase what US buyers pay for metals from China and likely from nearby markets trying to compete with Chinese steel. China’s VAT is just one of many ways that imports could become more expensive later this year as…

Tariffs On Foreign Steel Could Increase This Fall

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At least export me for as much as it cost to produce me. I feel I deserve at least that much.

We already know some Chinese producers are exporting steel and other metals at below their production cost. So, the anti-dumping action against coated/anti-corrosion steel filed by six US producers last week against China and four other nations has a really good chance of turning into anti-dumping duties this Fall when the Commerce Department makes a ruling on the petition.

We’d say it’s kind of a slam dunk, but even slam dunks can be hilariously missed. The tariffs the US producers are asking for are in a range that would significantly increase the overall cost of steel from the five nations.

That was the wild week in non-prices. Next week we hope to write more about, you know, actual prices.

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Using robots that can “draw” steel structures in 3D, Dutch technology firm MX3D is planning to 3D “print” a steel bridge over one of Amsterdam’s famous canals in the center of the Dutch Capital. MX3D researches and develops robotic 3D printing delivery technology as well as projects such as the pedestrian bridge. The robots creating the will actually be large welder robots usually seen in factories rather than construction sites.

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The project is a collaboration between MX3D, design software company Autodesk, construction company Heijmans and many others. Designing and “printing” the intricate, ornate metal bridge is a test for the robots, software engineers, craftsmen and designers working on it, including designer Joris Laarman Lab.

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The planned steel pedestrian bridge in Amsterdam will be built by robot “welders” who 3D print the bridge from each side and meet in the middle. Image courtesy of Joris Laarman for MX3D.

“I strongly believe in the future of digital production and local production, in ‘the new craft,'” said Joris Laarman, principal of the Joris Laarman Lab. “This bridge will show how 3D printing finally enters the world of large-scale, functional objects and sustainable materials while allowing unprecedented freedom of form. The symbolism of the bridge is a beautiful metaphor to connect the technology of the future with the old city, in a way that brings out the best of both worlds.”

Bridge Welding Robots

MX3D will equip its multi-axis industrial robots with 3D printing hardware that can print metals, plastics and combinations of materials in virtually any form. The system is controlled by software developed by MX3D with support of new-generation tools from Autodesk, such as Autodesk Dynamo, an open-source design tool that can create algorithms to automate the creation of plans for complex geometric form such as those used in the Amsterdam bridge.

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Utilizing a process known as digital digital laser sintering, Amsterdam’s new pedestrian bridge will actually be welded in place in the field by large robots and not printed in a factory. Image courtesy of MX3D.

From large construction to small parts, the manufacturing techniques MX3D uses enables printing of strong, complex structures made of durable material, in this case ornate steel. It is more cost-effective and scalable than other 3D printing methods for projects such as the pedestrian bridge.

Construction Potential

“What distinguishes our technology from traditional 3D printing methods is that we work according to the ‘Printing Outside the box’ principle,” said Tim Geurtjens, CTO of MX3D. “By printing with 6-axis industrial robots, we are no longer limited to a square box in which everything happens. Printing a functional, life-size bridge is of course the ideal way to showcase the endless possibilities of this technique.”

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MX3D welder/sinterer/printer robot. Image courtesy of MX3D/Adriaan de Groot.

The project achieves one long-term goal of 3D printing supporters in that it delivers a project outside of the traditional confines of the technology, small parts created in a small printer in a manufacturing environment. This means possible on-site use by construction companies and more accurate quantities of welding/sintering material for metals buyers.

Of course, many more projects such as this one would be needed to prove the technology can work with modern construction methods.

“The MX3D platform is a potential game changer,” said Maurice Conti, Director Strategic Innovation at Autodesk. “Breaking free of the traditional limitations of additive manufacturing — small size prints and poor material performance — this technology opens up possibilities for architectural-scale, relatively low-cost, metal structures that are as complex as the designer’s imagination.”

Which Amsterdam canal the bridge will be built to span has not yet been announced but a visitor center accompanying the project is planned to open in September and construction and “printing” is expected to begin around the same time.

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Indian steel, aluminum and copper companies are pinning their hopes on India’s defense sector to help increase sales.

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The government’s “Make in India” campaign, a broad sweep enveloping the entire manufacturing sector, and, as a result, the metals and mining sectors, is expected to boost local raw materials used in defense applications.

The government raised the threshold for foreign direct investment in defense to 49% and has done away with licensing requirements for most items. Several Indian companies such as Tata Steel, Reliance Industries, Mahindra, Larsen & Toubro and others have started identifying areas of defense production their products fit in. They have also started scouting around for foreign partnerships and technology transfers.

International Joint-Venture Partners

One such international player that has in the past shown active interest in this sector is Germany’s ThyssenKrupp AG. The company is reportedly pursuing two interests in the defense field – naval weapons, specifically submarines, and aerospace.

In a recent interview with the Business Standard, Michael Thiemann, CEO of the company’s India region revealed that ThyssenKrupp India Pvt. Ltd was looking to expand its business in not only these segments but was also interested in investing in “smart” cities.

Thiemann said his company was already in discussion with public sector and private shipyards on the submarine front. The CEO let on that his company was open to tying up with private Indian companies such as Larsen and Toubro Ltd. for defense projects.

Project 75

“Project 75,” a plan for the construction of six submarines for the Indian Navy has been in the pipeline for several years now, but with the Make In India campaign it has caught a second wind.

Going by media reports here, the Indian government is likely to shortlist shipyards for the project in about two months. Thiemann said Thyssenkrupp has the technology and expertise and is willing to collaborate with Indian companies, by offering design, engineering and implementation know how.

Thyssenkrupp’s Edge

ThyssenKrupp already makes mining equipment and cement in India. But specifically, where the defense sector is concerned, ThyssenKrupp, say analysts, may have an edge because one of its group companies, ThyssenKrupp Marine Systems (TKMS) has been a partnering with the Indian Navy for more than two decades. Some of the Indian Navy’s previous submarines were made in India under a technology-transfer agreement in which TKMS was involved.

ThyssenKrupp has already invested in a service center at Bengaluru in South India for material processing of aluminum and titanium used in the manufacture of aircraft. The current revenue size of India’s aerospace business is nothing to write home about, but it is expected to grow because of the decisions made by the government.

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The Bureau of Labor Statistics recently released its producer price index (PPI) for May. An analysis by the Associated General Contractors of America showed that steel mill product prices were down 2% for the month and 11% over the previous year.

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AGC Chief Economist Ken Simonson wrote that goods such as steel and concrete constitute 60% of the index (including 7% for energy); services, 40% (trade services, 25%; transportation and warehousing services, 4%; other services, 10%). The overall PPI for inputs to construction increased 0.6% from April to May. The index for energy soared 12% for the month, outweighing declines of 0.2% in the index for goods less food and energy and 0.1% in the services PPI.

The PPI for all goods used in construction declined 3% over the last 12 months. Materials important to construction that had notable one- or 12-month price changes include diesel, up 11% for the month but still down 36% over 12 months. The aforementioned steel mill products fell -2% and -11%, respectively. Steel pipe and tube were down -1.9% for the month and -9.2% for the year. Copper and brass mill shape prices were up 3.7% in May but still -3.7% for the year. Fabricated structural metal bar joists and rebar prices were up .3% and 1.3% for the last 12 months.

What this Means for Metal Buyers

Energy prices are still rising, changing the cost calculations for construction projects, yet construction materials prices remain low, allowing estimators to reduce costs.

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Sources told Reuters that steelmakers in China were selling their products below cost and President Obama hosted a picnic at the White House with members of Congress ahead of a key trade vote.

Confirming What We Already Knew

Some Chinese steelmakers are selling their products abroad at a loss, traders and a producer told Reuters, as a group of global industry bodies urged governments to take action over rising shipments from China.

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Chinese mills had sold steel overseas at a loss of up to 200 CNY ($32) a metric ton and cut the export price of hot-rolled coil by 5% to $340-$350 per mt, free-on-board basis, this week compared to last week, traders and a producer in Hebei, China’s top steel-producing province told the news service.

These mills were also selling at a loss to the domestic market, the sources said.

“The domestic market is too weak to consume high output and our prices are competitive, so some mills are still keen to step up exports, hoping to ease high inventories and maintain market share,” said a senior official at a privately owned mill in Hebei.

Preesident Has Picnic With Lawmakers Ahead of Trade Re-Vote

President Obama hosted members of Congress yesterday for the congressional picnic amid a fierce trade debate on Capitol Hill.

This year’s gathering took place before the House was expected to hold a vote today to revive the president’s stalled trade agenda, and less than one week after Democrats killed a key part of the legislative package.

House Minority Leader Nancy Pelosi (D-Calif.) was in attendance at the picnic. The president has not spoken with her personally since she led the Democratic revolt against the trade bills.

The event is seen as an opportunity for the president to get face time with lawmakers in a low-pressure setting. That could prove to be important for Obama with the House set for a re-vote on fast-track trade authority and a measure to provide aid to US workers displaced by international trade.

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The American Iron and Steel Institute said in a telephone press conference that the House of Representatives’ passage last Friday of a customs bill, which includes new trade remedy provisions for collecting tariffs on imports determined to have been illegally subsidized or “dumped” by their origin nations, was a major win for the US steel industry.

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The House voted in favor, Friday, of trade promotion authority (TPA), a major free trade power desired by President Obama, but the House also rejected Trade Adjustment Assistance (TAA) in a separate vote. In order for TPA to advance to the President for his signature, the House had to pass both TPA and TAA. So, TPA was pronounced not to have passed yet, either.

What Now For Trade Authority?

Speaker of the House John Boehner (R. Ohio) has already moved to reconsider the vote on TAA and the House rules committee will extend the time for a second vote to occur sometime between now and July 3oth. While it was certainly a setback for the President in getting fast approval of TPA, there was a separate vote on a customs bill that includes trade remedy provisions that passed.

“We specifically advocated for provisions to provide for more effective remedies against imports that are dumped or subsidized,” said Thomas Gibson, president and CEO of AISIS. “As regulars on this call know, steel imports have reached historic levels in the past few years due, in large part, to unfair trade practices.”

New Customs Enforcement Passes

Finished steel imports in 2014 increased 36% compared to 2013. Total steel imports over the same time frame were up 38%. Last year, imports captured 28% of the market surpassing the prior record of 26% and this year the finished import steel market share has continued to thrive and is already at 32% on the year-to-date. Not surprisingly, year-to-date raw steel production is down 7.3% and shipments through April were down 9.5%.

Approval of the House customs bill was NOT dependent on the passage of the TPA/TAA package in the House, either. So, both the senate and house have passed customs bills. The Senate passed its ENFORCE (Enforcing Orders and Reducing Customs Evasion) bill in April

The two bills now go to conference committee to resolve their differences. One difference between the House and Senate bills is the so-called “enforcement act” provisions which would create a new procedure for industries to petition for action to address trans-shipment and evasion of already-determined customs duties. The ENFORCE Act creates procedures for a federal agency or interested party to make good faith allegations of a company’s evasion of anti-dumping and countervailing duty orders to US Customs and Border Protection.

Senate ENFORCE Act Better for US Producers

“AISI has long-supported the senate version of the bill and will continue to push for adoption of its approach in the conference committee,” Gibson said, “but the bottom line is the steel industry is one major step closer to getting trade remedy provisions signed into law after last Friday and that’s a good thing.”

Gibson also said the infrastructure bill authorization runs out again at the end of July and the House ways and means committee and the senate finance committee are holding hearings this week to find a long-term solution for funding the Highway Trust Fund for upkeep of federal roads, bridges and other infrastructure.

No Reason to Tie Highway Funding to TAA

“It affects us in two ways: use of the infrastructure for a competitive economy and the public construction market is beholden to its infrastructure for transportation,” Gibson said. “AISI supports a user fee approach, something like a gas tax to provide a long-term funding solution. We think it can be solved this year.”

Gibson stopped short of supporting a solution that combines both a highway bill and TAA as House Minority Leader Nancy Pelosi (D. Calif.) advocated last week after speaking against the TAA bill on the House floor.

“We don’t believe it can get done at the same time at this point,” Gibson said. “We believe those comments were more of an explanation by former Speaker Pelosi of why she was against the bill (TAA) she had said she was for the week before.”

Anti-Dumping Enforcement

Gibson said as soon as the conference committee sends a final customs bill to the President and he signs it, the new language would apply and a petitioner to Customs and Border Protection could take advantage of the new trade law remedy provisions for enforcing existing anti-dumping countervailing duties.

The remedy provisions would not drastically change the standards by which injury is determined and how they are adjudicated. The ENFORCE ACT and the House’s customs deal mainly with the enforcement, addressing evasion, trans-shipments and other ways importers avoid duties at US customs.

“As opposed to bringing cases to the International Trade Commission and Dept. of Commerce, which is the trade remedy provisions, these deal with enforcement,” Gibson said. “That’s exactly why we think the senate version (ENFORCE) is superior to the version that passed the House because it has enforceable deadlines and, if an agency ignored its obligations, you’d be able to go to a court to tell the agency to obey its mandate.”

Trade adjustment assistance expires at the end of September if it’s not reauthorized before then. Gibson said that would be a big loss for proponents of free trade such as the President and congress’ republican majority who have both supported TAA in its current form. He also said the next “pressure point” was Congress’ July 4th recess which actually starts June 30th and AISI expected action on TAA before that.

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Outokumpu has a competitive advantage that it hasn’t capitalized on and given the state of the stainless market we, quite frankly, can’t understand why.

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Outokumpu appears to be the only mill in North America that produces cold-rolled stainless steel 72 inches wide. But we’re not sure if anybody really knows that.

Coming from the mills, I believe each mill should focus on their competitive advantages, and Outokumpu is the only North American mill producing 72-inch-wide stainless. The US market for 72-inch-wide material has been historically served by imports from Outokumpu, Aperam and Tisco.

The Marketing Path is Well Paved

Outokumpu need not reinvent a marketing strategy to sell 72-inch-wide products. They only need to look at one of their direct competitors, North American Stainless.

In fact, Outokumpu ought to adopt the NAS strategy for 60-inch wide. Let’s flash back in time to about 25 years ago. Nobody used 60-inch-wide material. 60-inch wide was sold at a premium above 48-inch wide. It made sense for NAS to sell 60-inch wide at the same price, or even a cheaper price, as it optimized the full width of its rolling mills. Once the price difference went by the wayside, there were no penalties for buying wider material. Guess what? The market took off. Outokumpu should be deploying the same strategy.

It’s a Big, Wide Market

The market for 72-inch wide remains untapped. As I visited customers while working for a service center, I became interested in how many had wide lasers or other processing equipment. Other markets such as carbon steel and aluminum use wide material. Other markets such as carbon steel and aluminum use wide material. I saw that many customers had invested in new wider equipment. My hypothesis: I don’t think many buying organizations really know that 72-inch wide material is produced domestically.

That domestic capability ought to attract the attention of large cold-rolled stainless steel buying organizations.

Instead of stainless mills fighting for the same piece of pie, they need to focus on their respective competitive advantages. Outokumpu ought to be filling one of its three cold-rolling mills with 72-inch-wide orders. We just haven’t seen much promotion of this capability. The same holds true for Allegheny Technologies. Although Allegheny’s hot-rolling mill can go to 78.74-inch-wide, none of their cold-rolling processes are built around it. So, the best they can offer is to be an alternative for 60-inch wide, which in itself is not a bad thing. From a buyer’s perspective, competition is always good.

What This Means for Buyers

Wider is definitely better when it comes to welding. Wider widths help to reduce the number of welds needed. The last time we checked, welders were in short supply.

It’s pretty simple, Outokumpu: get rid of that premium and start making it attractive for people to buy your products. We’re pretty sure that will help fill that mill!

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Ernst & Young has quantified the effect of lower oil prices on exploration and non-residential construction starts soared in May.

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Deepwater oil projects and complex gas facilities worth around $200 billion have been canceled or put on hold worldwide in recent months due to the sharp drop in oil prices over the past year, consultancy Ernst & Young said on Tuesday.

Further project cuts and delays are likely as the industry braces for an extended period of lower oil prices as a result of a supply glut. This has affected the previously strong sales of metal products such as oil country tubular goods (OCTG).

Non-Residential Construction Up

Non-residential construction starts soared by 30.3% in May after taking a 5.6% hit a month earlier, according to data provider CMD.

Non-residential construction starts were 2% higher for the first five months of 2015 than they were during those months last year. The value of non-residential construction starts from January to May was $119.5 billion, the report said. Standout projects that started in May include Tesla Motors’ $2 billion battery gigafactory in Nevada and $1.1 billion Microsoft data center in Iowa.

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China is planning to remove its business tax on services and replace it with a value-added tax that applies to both goods and services.

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What does this mean for companies that purchase metals abroad? A lot. A projection has shown that removing the business tax and replacing it with what many believe the new VAT will be will cost the government 1 trillion CNY ($161.2 billion) in tax revenues, but Beijing is aiming to stimulate its economy and increase growth long-term, so the government is willing to take a hit in tax revenue in the short term.

What the New VAT Means to Purchasers

A metals purchaser who works with suppliers in China confidentially told MetalMiner that, under China’s new VAT plan, metals such as cold-rolled steel would receive an import tax of 3-6% depending on the thickness. The VAT on these goods would be 17% of which 9% gets refunded when it is exported, creating a net VAT of 8% and a net total tax of 11-14%.

Purchasers are currently analyzing several scenarios of what metals producers in China, Taiwan, South Korea and other markets that would be affected by the new VAT will do to keep their products competitive when it goes into effect.

New VATs in October

A similar VAT program was tried in Shanghai as a pilot project as a replacement for the business tax. An announcement on both the property VAT and a separate VAT for financial transactions is expected in July but both new VATs are not expected to go into effect until October.

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China is planning to replace business taxes with a revamped value-added tax that may expand three crucial sectors next month, according to a report Thursday from the state-run Economic Information Daily.

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A revamped VAT in China will affect imports and exports.

The program is an extension of a pilot project in Shanghai.

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The Ministry of Finance laid out a reform plan involving real-estate, finance and consumer services that it expects to put into effect in July, the report said. Under the blueprint, an 11% tax will be levied on property and construction companies, while a 6% rate will be imposed on financial and consumer-service industries. China started a trial run of VAT reform in 2012, aiming to reduce double taxation on companies and reduce their overall tax burdens. If fully implemented in the entire country, the VAT reform could lower taxes as a whole by 900 billion CNY ($144 billion). The Ministry is under pressure to increase consumer spending and increase growth.

A VAT taxes the difference between the sale price charged to a customer, minus the cost of materials and other taxable inputs. It is collected at the point of sale, making it, theoretically, easier to collect than individual and corporate taxes.

The Ministry of Finance already recently slashed tariffs by 50% for 14 categories of products including cosmetics, shoes and diapers. The reduction in taxation was intended to get Chinese consumers to spend more and give them access to more international brands and products.

One industry that would not welcome the new structure is China’s financial sector. Scrapping the old VAT and replacing it with the new 11% and 6% rates of taxation would likely raise the net tax burden of Chinese financial firms. There is currently a 5% corporate tax on the sector. A new VAT would also affect firms in the US taking delivery of exported Chinese goods, such as steel. China removed export tax rebates on boron-containing steels to dissuade producers from simply shifting excess production onto export markets back in January, but removing the rebate didn’t really make much of a dent in Chinese exports. It’s still unclear how the new rates would effect exports.

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